Commercial Metals Company (CMC)

With just a week of bargaining left until the national contract for U.S. refinery workers expires, talks over a new agreement between the United Steelworkers union and lead oil company negotiator Royal Dutch Shell (RDS.A, RDS.B) appear to be making little progress.

The USW rejected the first industry proposal on Friday, calling it "inadequate and offensive."

The union is seeking annual pay raises double those of the last agreement, and wants work given to non-union contractors to go to USW members.

Iron ore miners are broadly lower after Goldman Sachs becomes the latest global bank to deliver a dismal outlook for the steel-making ingredient, forecasting an average price of $66/metric ton this year from an earlier estimate of $80.

Goldman is at least the fifth bank this month to lower estimates, citing rising seaborne supplies and weaker demand growth from China; just last week, Citigroup cut its iron ore forecast to $58 in 2015, down from its earlier $65, and UBS lowered its target to $66 from $85.

Low-cost expansions likely will continue as major producers are still mining iron ore at a profit, which would expand the global seaborne surplus from 47M tons this year to 260M tons by 2018, Goldman says.

Energy-related demand represents ~13% of U.S. steel sales, which Credit Suisse analysts say places most at risk US Steel’s (X-1.9%) tubular goods business, which produces OCTG products, and Commercial Metals' (CMC-3%) steel mills business, which has a significant exposure to Texas and other oil-rich regions.

The firm also says North American iron ore producers such as Cliffs Natural Resources (CLF-3.4%) have higher energy intensities than Australian and Brazilian producers at both the mine and on the sea, and the lower oil price in theory partially closes the gap between North American and Brazilian/Australian supply, but any gains would be short-lived.

The U.S. says it will terminate a 15-year-old deal sheltering Russian flat-rolled steel producers from high import duties, and anti-dumping duties will apply beginning Dec. 16.

U.S. steel producers, including U.S. Steel (X+5%) and Nucor (NUE+2.2%), complained to the Commerce Department in July that the reference price set in a 1999 agreement, which also set a cap on imports, had been below U.S. market prices since 2004.

However, J.P. Morgan analysts see no reason for buying steel stocks (NYSEARCA:SLX), saying the move impacts only 1.4% of U.S. market share; in fact, the firm suggests shorting steel stocks on the "misinterpretation" of duties on Russian imports of hot rolled steel.

The U.S. Commerce Department has announced that Turkey has not been dumping rebar and will not impose duties on it, and Axiom Capital thinks it is bad news for U.S. Steel (X-0.7%).

Axiom says it is difficult to imagine U.S. steel mills successfully arguing that dumping is occurring against the current macro backdrop when U.S. HRC spot prices are sitting at a $93, $63 and $18 premium to Chinese, EU and Turkey HRC spot prices.

The firm continues to believe the rally in U.S. Steel is based several misconceptions by the market (earlier).

A group of five U.S.-based steel producers, including Nucor (NUE-0.9%) and Commercial Metals (CMC-2%), sued last year, accusing Turkey and Mexico of essentially undercutting U.S. prices to grab sales and market share; the U.S. confirmed duties on Mexican material of up to 66.7%.

Axiom Capital’s Gordon Johnson admits he’s been wrong on U.S. Steel this year, but he stands by his bearish call, noting that what really got the stock going was guidance for Q3 pointing to ~$1/share in GAAP EPS.

Johnson thinks the optimism is not realistic and sees 10%-15% downside to U.S. HRC spot prices as likely before year-end 2014 and noting the inherent volatility in the company's earnings to shifts in U.S. HRC spot prices, elevated by resiliency in U.S. HRC spot prices (-1.2% YTD), despite the fall in both iron ore (-35% YTD) and coking coal prices (-21% YTD).

Shares also may be getting a lift because of its exposure to favorable headlines out of eastern Europe: US Steel Europe, representing 17% of overall revenue, includes a steel plant and coke production facilities in Slovakia.

ArcelorMittal (NYSE:MT), with a strong presence in the area, also +2.7%; the other U.S. steel producers - AKS, CMC, NUE, STLD - have less exposure to the region and are little changed premarket.

Commercial Metals Co recycles, manufactures, fabricates and distributes steel and metal products and related materials and services through a network of locations throughout the United States and internationally.